* Labour reforms help competitiveness, hurt consumption
* Sixth of those with jobs work part time
* Economists say lower consumption threatens growth
By Paul Day
MADRID, April 22 Carmen Collado has laundered
hospital linen in Madrid for 11 years. Now, almost half her
colleagues have been fired and the 61-year-old grandmother is
cleaning the same bed sheets, nurses' scrubs and towels as
before for half the pay.
Collado is still working in a country where more than one in
four out of a 22.7 million workforce have no job. But her
employment does her, and Spain, few favours in the long term.
"I've had to turn the heating off this winter. I can't
afford to go out with friends, and I'm ashamed to say I have
turned to my own mother, who is 91, to help pay for gasoline and
car insurance," says the tough, fair-haired labourer.
New laws giving companies more flexibility to cut salaries
and change contract terms for employees have helped Spain pull
itself back from the brink of default two years ago, restarting
export growth by letting companies push down prices.
But the shift in labour rules, promoted by the European
Union as part of economic changes asked of the euro area's more
indebted nations, has also transformed Spanish society, with
long term consequences that could undermine the recovery.
Workers on low-wage, short-term contracts have borne the
brunt of the salary reductions, creating a new underclass of
Spaniards who are likely to struggle for the rest of their lives
to find stable employment.
According to the International Monetary Fund, wage
inequality rose faster in Spain than in any other EU country
from 2007 to 2012, a divide that has escalated social tensions
in a country that had only recently healed the wounds of a
36-year dictatorship ended in 1975.
A recent poll indicated support for Spain's two leading
parties would fall sharply at the upcoming European elections,
often considered a protest vote, in favour of much smaller
groups, due largely to their handling of the economic crisis.
As voter confidence in the main parties dwindles, the
conservatives could lose their absolute parliamentary majority
in next year's national election, making it harder to pass still
vital reforms through a divided legislature.
Despite clear signs of recovery, with output expected to
grow around 1 percent this year after having shrunk around 7
percent since the crisis began, Spain's path to long-term
prosperity is likely to be steep, economists say.
Though exports have swelled to one-third of Spain's overall
output, up from 20 percent five years ago, the country's
economic health is heavily reliant on household spending, which
has shrunk in the same period.
That means Spain will struggle to follow in the footsteps of
Germany, whose labour market reforms of the 1990s transformed it
into an economic powerhouse fueled by higher-end exports rather
than domestic consumption.
Economists also question whether the cheaper, basic goods
that have boosted Spain's export sector can in the long-term
compete with rival products in even lower-cost countries such as
Turkey or Morocco.
"The way out for Spain is going to be painful and, overall
in the short run, Spain is going to be a poorer country," says
Santiago Carbo Valverde, economist at Bangor University in
Household spending, a major pillar for a service-orientated
economy like Spain, has shrunk by more than 11 percent since the
burst of the property bubble six years ago. While the speed of
the contraction is easing, much lower wages mean a return to
sustainable growth could take years.
Trying to improve competitiveness by lowering wage bills was
counterproductive in Spain, Klaus Armingeon, political scientist
at Bern University in Switzerland, said.
"Cutting wages hurts domestic consumption, which affects
growth. Lower growth will force the government to pass more
austerity measures to meet fiscal targets, creating a vicious
The collapse of the real estate sector in 2007 and 2008
after a decade long property bubble sent the Iberian country
into a downward spiral. Households and companies were left
deeply indebted; the state was starved of lucrative real estate
taxes and companies fired people en masse.
Nearly one-third of jobless people among the euro zone's 17
countries are in Spain. At one point, concerns over the public
sector deficit and banks in the bloc's fourth largest economy
threatened the stability of the entire single currency.
Pushed by its international partners, Spain undertook
reform. Both conservative and centre-left governments approved
changes aimed at creating more employment, in part by making it
easier and cheaper for struggling companies to replace workers.
The number of people on low-paid, short-term contracts has
soared. By the end of last year, 16.3 percent of those with jobs
were working part-time, up from 11.1 percent in mid-2007.
Teresa Cavero, a researcher for international aid agency
Oxfam in Spain, says the result has been an increase in the
number of so-called active poor.
"These are people who are in work, but with very insecure
jobs and very low wages," she said. The percentage of workers at
risk of poverty jumped by almost 18 percent from 2007 to 2012,
according to Spain's National Statistics Institute.
"It's good that there is work, yes, but at what cost?"
With around six million people without a job, Spaniards are
jumping at any chance of employment.
When Swedish furniture retailer Ikea announced it was
opening a new store outside Valencia and would need 400
employees, more than 20,000 applied within days of the posting,
crashing its computer servers.
Marina Fuentes, a 57-year-old Spaniard who has been cleaning
Madrid health clinics for 34 years, was forced to take a cut in
salary last year.
Now, Fuentes' 800-euro-a-month salary is helping support
Fuentes' unemployed daughter, son-in-law, granddaughter and
nephew who are living in a two-bedrooom flat. When her daughter
asked a social worker for advice on what to do, she was told she
should move back in with her mother.
"I could get to the end of the week before; now I'm lucky if
I reach Wednesday," says Fuentes, who says she's trying to buy
and cook in bulk and freezing in order to save money.
Jobs that were previously shunned are now hot property.
Daniel Gismero, a 34-year-old street sweeper in Madrid, is
part of a union that successfully fought to avoid a 40 percent
pay cut at the private company that is contracted by the city
government to clean the Spanish capital.
Their bargaining chip was weeks of strikes which left piles
of trash on every corner of the city. He says the company is
inundated with job seekers.
Gismero takes home 1,100 euros a month and has agreed to a
pay freeze and a reduced salary for six weeks of the year until
2017 to avoid more damaging pay cuts.
"Before, nobody wanted my job," he said. "It was always seen
as a shit job with shit pay. I feel like one of the privileged
(Editing by Alessandra Galloni and Philippa Fletcher)